Effective tax planning is key to managing a profitable farming operation. While many small business tax concessions are also available to farmers, there are several tax rules and benefits designed specifically for those in the agricultural sector. Here’s a summary of key strategies you should discuss with your tax advisor this financial year.
1. Small Business Depreciation Rules
If your farming enterprise qualifies as a Small Business Entity (SBE)—defined as having an annual turnover of less than $10 million—you may opt into simplified depreciation rules. These allow you to:
-
Immediately deduct eligible asset purchases costing less than $20,000
-
Pool higher-cost assets ($20,000+) for depreciation at 15% in the first year and 30% thereafter
Note: Assets must be first used or ready for use by 30 June 2025 to claim them in the 2025 financial year.
2. Deductions for Primary Production Assets
Farmers can claim immediate deductions for specific assets critical to agricultural operations, including:
-
Water facilities – Dams, irrigation systems, pumps, tanks, and related infrastructure
-
Fencing – New or replacement fencing across the property
-
Fodder storage assets – Includes silos, sheds, and bunkers used for storing grain or feed
3. Landcare Operations
Capital expenditure on landcare activities is deductible if it supports land used in a primary production business. Eligible activities include:
-
Fencing for land management or animal exclusion
-
Levees and drainage works for salinity and erosion control
-
Pest and weed eradication
-
Repairs or improvements to existing conservation infrastructure
4. Horticultural Plant Write-Offs
Costs to establish horticultural plants can be claimed over their effective life. If the plant’s life is under three years, the cost can be fully deducted immediately.
5. Electricity & Telephone Infrastructure
You may be entitled to claim deductions over 10 years for costs associated with:
-
Connecting or upgrading mains electricity to farming land
-
Installing or extending telephone lines used in your primary production business
6. Trust Distributions
If your farming business is operated through a trust, it is crucial that trustees document and finalise income distributions before 30 June. Failure to do so may result in the trust being taxed at the top marginal rate (45% plus Medicare levy). Notify beneficiaries of their income entitlements by the relevant deadline.
7. Income Averaging for Primary Producers
The income averaging system helps farmers manage fluctuating income levels by spreading tax liability over five years. If your income rises above your average, you receive a tax offset; if it falls below, you may owe more tax. You can opt out for ten years, but re-entry is only possible after that period.
8. Farm Management Deposits (FMDs)
FMDs allow farmers to shift income from high-income years to lower-income years. To qualify:
-
You must be an individual or beneficiary/partner in a farming business
-
Your non-primary production income must be below $100,000
-
Deposits must be at least $1,000 and cannot exceed $800,000 total
-
Funds must remain in the account for at least 12 months
Early withdrawals due to natural disasters are allowed without losing previous deductions, although the amount is still assessable income.
9. Adjusting PAYG Instalments
If your earnings are lower than expected, you may be able to vary your March and June PAYG instalments. This helps improve cash flow ahead of lodging your return.
10. Writing Off Bad Debts
Ensure any uncollectable debts are formally written off before 30 June to claim them as a deduction. Supporting documentation should be retained.
11. Non-Commercial Loss Rules
If you’re a sole trader or a partner and your business activity results in a loss, you can only offset this loss against other income if you pass one of four tests:
-
Income Test – At least $20,000 of assessable income
-
Profit Test – Profit in 3 out of the last 5 years
-
Real Property Test – Property used in the business is worth $500,000+
-
Other Assets Test – Other business assets (excluding vehicles) are worth $100,000+
An exception applies to primary producers with unrelated income below $40,000. High-income earners ($250,000+) may be ineligible unless special circumstances apply.
12. Capital Gains Tax (CGT) Concessions
If you sell a farming business asset, you may qualify for valuable CGT concessions, provided you:
-
Are a CGT small business entity (turnover under $2 million), or
-
Have net business assets under $6 million
The available concessions include:
-
15-Year Exemption
-
50% Active Asset Reduction
-
Retirement Exemption
-
CGT Rollover Relief
These rules are complex—consult your advisor before selling any assets.
13. Timing Income & Expenses
Be strategic in recognising income and bringing forward deductions before 30 June. Consider:
-
Deferring sales or invoicing where appropriate
-
Purchasing assets or prepaying expenses (e.g. fertiliser, fodder, insurance)
-
Making superannuation contributions
-
Undertaking repairs or maintenance work
14. Livestock Disposal & Death Proceeds
Farmers can defer or spread profits arising from:
-
Forced disposal or death due to natural disasters, disease, or contamination
-
Compulsory land acquisitions or government disease control programs
Options include spreading profits over five years or reducing the cost base of replacement stock over time.
15. Double Wool Clip Election
If adverse weather (e.g. drought, fire, flood) leads to an early shearing, wool producers can defer the income from a second clip to the following year.
16. Livestock & Trading Stock Valuation
Stocktakes must be conducted as of 30 June. Livestock can be valued by:
-
Cost
-
Market selling price
-
Replacement value or lower market value
Track quantities as:
Opening stock + purchases + natural increase – sales – deaths – usage = Closing stock
2024/25 Tax Rates for Individuals
| Taxable Income ($) | Tax Rate (%) |
|---|---|
| 0 – 18,200 | 0% |
| 18,201 – 45,000 | 16% |
| 45,001 – 135,000 | 30% |
| 135,001 – 190,000 | 37% |
| 190,001+ | 45% |
A Medicare levy of 2% may also apply.
Get Ahead with Expert Advice
Managing a farm’s tax obligations requires careful planning. From drought-related relief to small business concessions, farmers have unique opportunities to reduce their taxable income.
Get personalised guidance and take control of your farm’s tax strategy this financial year. Visit our website Tax Visory.
